When Blue Chips Become Cow Chips and The FAILURE of 'Too Big Too Fail'

Posted by Howard
on March 2nd, 2009

I am mesmerized by this stock market.

I am barely involved but it is fascinating nonetheless. As happy as I am for sidestepping and actually making up ground since a horrid Janaury 2008 forced me out of most large positions, I am sickened by the thought of learning a new trade. I mean all-time highs?

There are no rules. In real estate, Blair is seeing 13-15 cap commercialand apartment deals (5 caps a year ago) that would be safe at 38 percent occupancy, but who knows what 38 percent means anymore when historical standards have been squashed.

The VIX (a measure of fear and volatility) would ever so rarely spike above 40, but now lives above 50.

Last week I tweeted that Stocktwits should ban discussion on stocks under $5, but I forgot that would drop 90 percent of the world’s financial stocks. I was quickly reminded of that by about 1,000 people. I almost pulled a ‘Zuckerberg’ Bbeacon) :) , but I asked before doing!

As my uber smart friend WoodrowWood83 outlines in this great post entitled ‘When Blue Chips Become Cow Chips ‘:

44 of the 500 constituents in the S&P 500 are trading below the $5 threshold. When 9% of the de facto blue chip equity index are below a given threshold, you have to throw out a lot of the rules we used to hold as truths.

But this is just one arbitrary measure of many that hints at the degree of market degradation we’re experiencing. Remember, it wasn’t long ago that a company had to maintain a market capitalization of more than $5 billion to be included in the S&P 500. Then it was lowered to $4 billion. And then it was lowered again to $3 billion in December.

Why do I bring this up? Because as I type this, I calculate 139 S&P 500 stocks that are BELOW the $3 billion market capitalization threshold. Tough times continue. When we can’t even maintain listing requirements for more than a few MONTHS, how can we possibly and credibly argue that any metric like “trough earnings” on said index are relevant to finding a bottom?

Oh Howard, you are so negative and depressing…..

I say bullshit. Other than a dumb dabble into American Express, honoring the price action has kept me completely out of bank and financial stocks for 18 months plus. Furthermore, I helped people crush it on a Capital One Financial short all the way down to my cover at $11.

While CNBC brings yutz after yutz onto the ‘OctoIdiotBox’ pleading for their FAVORITE idea, I think it is up to us to say ‘Stop The Insanity’.

If you don’t think it is insane, read Woodrow’s great post on AIG . The pure shizzle for you lazy asses:

But the market is telling us SOMETHING.

* September 16, 2008 — SP500 closed at 1213.59
* October 8, 2008 — SP500 closed at 984.94
* November 10, 2008 — SP500 closed at 919.21
* March 2, 2009 — SP500 closed at 700.82

If the market is the ultimate discounting mechanism, shouldn’t our policy makers take note? Or perhaps that’s too much to hope for; after all, they have a PLAN.

There is no plan that will work at this point. If the government plans on another $30-$60 billion next quarter, we will surely be lower in the S&P again. You see, the big money hates government intervention…in anything. You can’t change the rules on big money. Sure, they are dumb and have been lazy and even criminal at times, but they make our markets. I am completely pissed and negative about the market and investing in public stocks and that is why I am ranting, but it has not bled into my other ventures because I am just watching it and writing about it. I can somewhat control my start-up investments in businesses ‘Too Small to Fail’ and have some fun.

Today I joked that my next fund will be called ‘Venture.GOV’ where I guarantee my entrepreneurs that even if we fail, we win. It was inspired by a tweet that said all new Citibank emails will be ‘[email protected]’

That’s not negative and angry…that’s just funny people.

Hang Tough.

PS – This is Negative …and Sadly HYSTERICAL !

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.